African Energy Resources, shortlisted for Botswana power project

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African Energy Resources(ASX: AFR) and the Kingdom of Saudi Arabia incorporated company ACWA Power International have moved closer to securing an invitation to bid on a large power project deal in Botswana.  ACWA has paid-up capital of around US$1.4 billion – and is owned by eight Saudi conglomerates.

In October 2013 the companies formed a bid consortium and submitted an Expression of Interest for a 300MW coal-fired Greenfield Power Project tender in Botswana.
The Ministry for Minerals Energy and Water Resources (MMEWR) is currently finalising the appointment of its legal advisors and transaction advisors for this 300MW Greenfield Power Project.

The MMEWR has outlined late March as an indicative timeframe for the invitation of bids from shortlisted parties. The African Energy/ACWA Power consortium has been shortlisted to receive the bid invitation from MMEWR. Importantly for African Energy/ACWA – a successful bid outcome within this indicative timeline would put the consortium in a position to seek financial close on the project by year end.

Sese can support multiple projects

African Energy’s Sese can support coal for multiple 300MW projects for regional power, and has a very low strip ratio with raw coal quality suited to low-cost power generation. Sese hosts 2.5 billion tonnes of coal. Another advantage with Sese is that it is close to existing transmission grid and planned grid extensions, and is matched to power markets in Botswana and neighbouring countries.

The key roles of AFR and ACWA Power

ACWA Power will be the lead developer, manager, co‐ordinator and chief point of contact of the Consortium, up to the point of financial close. Specific roles
will include:

– The management of the Project;

– The financing of the Project, including the preparation and negotiation of the Financing Documents;

– The selection of the technology and configuration of the Power Station;

– The selection of the EPC Contractor and the preparation and negotiation of the Transaction Documents; and

– The selection of the O&M Contractor and (together with AFR) the Mining O&M Contractor.

AFR will act as co‐developer but with no commitment for additional developmental funding, with the company expecting forecast costs to be reduced over the next year, as some expenses dedicated to the Sese power project will be borne by the Consortium.

Analysis

The African Energy/ACWA Power consortium bid for the 300MW coal-fired power project is just the beginning for African Energy, with the company focused on developing additional 300MW or larger power opportunities based on Sese coal. Highlighting a near term share price catalyst for African Energy, the consortium could be in a position to seek a financial close on the project by year end if successful.

ACWA has a portfolio of assets and power projects that delivers over 6,050 MW of power, demonstrating the significance and financial “horsepower” of the consortium. This should form a strong platform for the joint venture for the power project, with the ultimate objective of developing a coal-fired power station generation plant to be located at African Energy’s Sese coal deposit.

The project has the potential to deliver power into the grid as early as 2016.  If the consortium is successful in the Botswana bid process, African Energy will receive a structured financial return based on the financial model.

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